The foreign exchange and commodity markets are highly dependent on each other, fluctuations in one necessarily lead to an increase or decrease in quotations on the other. Oil prices affect the dynamics of the exchange rate especially strongly, while not all currencies depend on them to the same extent.
Instructions
Step 1
The cost of oil depends on many factors, including the level of its production, consumption, existing reserves, season, industrial production indicators. If the level of production declines, stocks fall, and production rises, the price of oil begins to rise. And vice versa, it is not the fall in industrial production, the warm winter season, or the increase in oil production that lead to a decrease in demand.
Step 2
The main world currencies are the dollar and the euro, and it is the former that is traditionally considered as a safe haven currency. This means that in the event of any economic shocks, financiers try to preserve their capital by investing it in the American dollar. It should also be borne in mind that the United States is the largest consumer of oil, therefore, information about the growth or decline of industrial production in this country and oil reserves in the most direct way affect the dollar exchange rate.
Step 3
Oil prices affect different currencies differently. Thus, the Canadian dollar in this regard demonstrates a very clear dependence: the oil price grows - the Canadian dollar rate grows, and vice versa. This is due to the fact that Canada is a large oil producer, but at the same time consumes only a small part of it. Oil is a major export commodity for Canada, so an increase or decrease in its value directly raises or depreciates the Canadian dollar.
Step 4
The situation is slightly different with the US dollar. The important thing here is that the price of oil is calculated in dollars. If the supply and demand in the oil market does not change, then the price for it seems to be at the same level. But we should not forget that the exchange rate of the dollar itself in relation to other currencies is changing all the time. Therefore, when the dollar rises, the price of oil does not begin to fall, since more oil can be bought with an expensive dollar. When the dollar depreciates, the oil price rises, since more dollars are needed to buy the same amount of oil.
Step 5
At the same time, the United States is the largest consumer of oil. With an increase in the price of it, the cost of goods produced in the country increases, which negatively affects the value of the currency. In addition, many oil producing countries refuse to sell it for dollars. To buy oil, US companies first have to buy the required currency on the market, which leads to an increase in the supply of the dollar and a fall in its price. Therefore, with an increase in oil prices, the value of the American currency begins to fall. Sometimes there is a situation when, with the growth of oil prices, the dollar also rises against the background of a good level of industrial production and employment indicators, but this state of affairs is rare and never lasts long.
